How you can pay family members using SBI Bandhan SWP

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SBI Bandhan SWP is a facility which will redeem a fixed amount from an SBI mutual fund scheme every month. As it does this, your balance in the scheme will fall. However, at the same time, your fund may be generating investment returns. The net result depends on whether your withdrawal is more or less than the growth in the fund. This is a withdrawal facility irrespective of the SBI mutual fund you have invested in.

Here is how it works:

Date

Beginning Value (Rs)

Growth (Rs)

Withdrawal (Rs)

End Value (Rs)

1st Jan 2018

10,000

1000

500

10,500

1st Feb 2018

10,500

500

500

10,500

1st March 2018

10,500

300

500

10,300

You can find a more complex illustration of an SWP on a Rs 1 crore-retirement corpus here.

SWPs have been in existence for a long time and are offered by many mutual funds. The twist with SBI is that the withdrawal amounts will be directly credited to the account of a family member – that is the ‘Bandhan’ element. A family member is defined as a child, parent or spouse.

Tax

Payments to family members, as defined above, are exempt from gift tax.

However, you will pay capital gains tax on the withdrawals if the fund has made gains.

Capital gains tax is 15% on withdrawals before one year (short-term capital gains) and 10% on withdrawals (over and above Rs 1 lakh) after one year for an equity fund (long-term capital gains tax).

It is as per your slab on withdrawals before one year and 20% with indexation after three years for a non-equity fund.

Note that this tax is payable by you and not the family member.

Procedure

If the KYC of the family member is done, you just need to submit the KYC letter. If it is not done, you need to submit proof of identity, address and a cancelled cheque for bank account proof. In addition, you need to submit proof of relationship such as birth certificate, passport or marriage certificate, whichever one is applicable.

The other features

The minimum withdrawal amount you can set up under this facility is Rs 5,000 per month.

You must also opt for 12 withdrawals per year at minimum.

These can be scheduled on the 1st/5th/10th/15th/20th/25th/30th of every month.

You can also cancel the SWP up to seven days before the next SWP date.